Fitch Affirms the Philippines' PLDT at 'BBB'; Outlook Stable
Fitch Ratings has affirmed Philippine Long Distance Telephone Company's (PLDT)
Long-Term Foreign-Currency debt ratings and senior unsecured rating at 'BBB'.
The Long-Term Local-Currency ratings were affirmed at 'A-' and 'AAA(phl)'
respectively. The Outlook is Stable.
Fitch said that the ratings also demonstrate the company's strong financial profile, including high EBITDA margins (45% in 2012) and sound funds flow from operations (FFO)-adjusted net leverage (end-2012: 1.5x).
PLDT's foreign currency ratings continues to be constrained by the Philippines' Country Ceiling of 'BBB', reflecting the country's foreign-currency transfer and convertibility risk. PLDT's local currency ratings exceeds the government's by two notches because foreign-currency transfer and convertibility risk are not taken into account and it reflects the company's unconstrained credit profile.
Fitch expects to see a gradual margin decline. This is due to continued intense competition for subscribers and a structural shift from high-margin traditional services (long-distance voice and SMS) to low-margin data services. Operators in the Philippines are aggressive in acquiring wireless subscribers, including offering tariff plans with unlimited calls, SMS and data usage, and offering subsidies rather than differentiated services. While the contribution from long-distance calls will fall, overall fixed-line revenue will increase due to strong data growth.
Fitch expects PLDT's capex to fall to about PHP30bn (USD696m) in 2013 after peaking at PHP36bn in 2012 with the completion of a major network modernisation investment undertaken in 2011-12. However, free cash flow (FCF) generation will remain marginal due to a continued high-dividend payment. We forecast financial leverage will remain at about 1.4x in 2013.
PLDT has approval from its board of directors to invest a total of PHP9.6bn to acquire a 64% economic interest in the pay-TV business owned by MediaQuest, which operates under the brand name of Cignal TV. As at the end of June 2013, Cignal had around 515,000 subscribers. This investment is in line with PLDT's intent to broaden its distribution platforms and increase the company's ability to deliver multimedia content to its customers across the company's broadband and mobile networks. The investment is funded by proceeds from the disposal of non-core assets (that is, the sale of its business process outsourcing segment) so there will be no impact on the company's leverage.